Tag: Family Law

Same-Sex Marriage Equality: What Employers Need to Know After Obergefell

Same-sex couples have a Constitutional right to marry and have their marriages recognized nationwide. In a 5-to-4 decision, the U.S. Supreme Court concluded that states are required to license a marriage between two people of the same sex under the Fourteenth Amendment. Obergefell v. Hodges, 576 U.S. ___ (2015). As a result, same-sex couples may now legally marry in all states. This ruling has massive implications, as rights and benefits extended to opposite-sex spouses will be available to same-sex spouses across the United States.

Marriage Equality Prevails

In an opinion authored by Justice Kennedy, the Court recognized that same-sex couples were not seeking to devalue the institution of marriage, but instead sought for themselves the respect, rights, and responsibilities that accompany a legal marriage. The Court held that under both the Due Process and the Equal Protection Clauses of the Fourteenth Amendment, same-sex couples have the fundamental right to marry.

The Due Process Clause provides that no state shall “deprive any person of life, liberty, or property, without due process of law.” The Court determined that same-sex couples may exercise the right to marry under this Clause for four reasons:

  1. the right to make the personal choice of who to marry is inherent in the right of individual autonomy; choices concerning family relationships, whether to have children, and whether to use contraception are protected intimate decisions that extend to all persons, regardless of sexual orientation;
  2. the right of couples to commit themselves to each other and enjoy intimate association extends to same-sex couples just as it does to opposite-sex couples;
  3. protecting same-sex marriage safeguards children and families because without the recognition and stability of marriage, children of same-sex couples suffer harm and humiliation as well as material costs because of the stigma attached to “knowing their families are somehow lesser” than families of opposite-sex couples; and
  4. marriage is a “keystone” of our country’s social order and national community; governmental recognition, rights, benefits and responsibilities depend in many ways on marital status and same-sex couples should not be denied the benefits that accompany marriage.

The Court also ruled that the right of same-sex couples to marry is a liberty protected by the Fourteenth Amendment’s guarantee of equal protection of the laws. The Court admonished that state laws that ban same-sex marriage deny same-sex couples the benefits afforded to opposite-sex couples, disparage same-sex couples’ choices, and diminish their personhood. The Equal Protection Clause prohibits such “unjustified infringement of the fundamental right to marry.”

Recognition of Marriages Performed in Other States

The Court also ruled that a state may not refuse to recognize the same-sex marriages lawfully performed in another state. The result is that any lawful marriage that has already taken place in the United States, whether same- or opposite-sex, must be recognized in all 50 states.

What This Means for Employers

Multi-state employers that have been dealing with state-specific policies that were dependent on state-law recognition of same-sex marriages may now want to implement a uniform policy that applies to all locations. Here are steps you should consider in light of the legalization of same-sex marriages nationwide:

  • FMLA leave: Same-sex spouses will be deemed spouses under the Family and Medical Leave Act (FMLA) no matter where the marriage took place or where the employee resides. This means that you need to permit eligible employees to take FMLA leave to care for their same-sex spouse with a serious health condition, for qualifying exigency leave if the spouse is being deployed and other qualifying reasons. Update your FMLA policies, forms and practices to permit this leave.
  • Bereavement and other leaves: If you offer bereavement leave for the death of a spouse or in-laws, you should update your policy to reflect that this leave includes same-sex spouses and relatives of the same-sex spouse. If you offer any other leaves that define immediate family or extend to familial situations, such as non-FMLA medical leave or military leave, update those definitions as well.
  • Marital status discrimination: If you operate in states that prohibit discrimination based on an employee’s or applicant’s marital status, you will be prohibited from discriminating based on same-sex marriages.
  • Emergency contacts and beneficiaries: Employees with a same-sex spouse may want to update their emergency contact or beneficiary information listed on group life insurance or retirement plans. Be prepared to administer these changes.
  • Employee benefits: Group insurance, retirement and other employee benefit plans will need to be reviewed and updated. Be certain to consult your benefits attorney and plan administrators for advice on required changes.
  • W-4 Forms and tax updates: In light of potential income tax implications for newly recognized same-sex spouses, some employees may want to change their tax withholding information. Be prepared to update W-4 and state withholding amounts upon request.

These and additional policies and procedures impacted by the Court’s ruling may require that you update your employee handbook, policies on your intranet, plan documents, forms, beneficiary designations and other personnel documents. Be sure to notify and train your human resources professionals and supervisors on all changes.

The Court’s landmark decision grants “equal dignity in the eyes of the law” to same-sex couples. Take this opportunity to review your employment policies and practices so your company does the same.

ARTICLE BY Sarah R. Wisor of Holland & Hart LLP

Copyright Holland & Hart LLP 1995-2015.

Tax Issues in Divorce: Real Estate Itemization Credits

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With the April 15th tax filing deadline quickly approaching, I am beginning to see an increase of the tax-related issues arise in my client’s cases.  The right of either of the parties to claim itemized deductions associated with the real estate taxes and mortgage interest paid on the marital residence is a frequent issue of contention.

It is important to first understand that if you were divorced in the early part of 2015 and filing under a “married, filed jointly” designation for the 2014 tax year, by default, you are sharing in the itemized deduction with your spouse due to the joint filing.  From a practicality standpoint, many divorced couples that file their last joint tax return together reach an agreement to equally split any tax refund or liability associated with their joint filing.

With a “married, filing separately” or “individual” tax filing designation, it is important to come to an agreement with your spouse or ex-spouse regarding the itemized deductions associated with the marital residence.  As the combined deduction between yourself and your spouse cannot exceed the actual interests or taxes paid in a tax year, getting ahead of the issue and reaching an agreement prior to either party’s tax filing is extremely important.

For successfully navigating this issue, I recommend that you consider the following three points:

How much did either party pay towards the mortgage interest and real estate taxes? 

With the overwhelming number of divorce matters settling by private agreement, it is important to take into consideration the financial obligations under the controlling agreement.  For example, if a party is behind on child support support or failed to make timely mortgage payments, they should not receive the tax benefit of claiming 50% of the mortgage interest or real estate tax deductions.

It is also common for the parties to pay a disproportionate amount towards the monthly mortgage/tax obligation due to either a greater income level or private agreement.  In these scenarios, I often find it useful for the parties to split the itemized deduction in direct proportion to the amount paid.

Balancing out the real estate tax deductions with other tax-related benefits.

Many parties often overlook the benefit of trading off real estate tax deductions with other tax-related benefits such as claiming the children as dependants, charity deductions or medical expenses.  If the goal is to equalize tax credits to both parties in a divorce litigation, applying other deductions or credits to one party may assist the parties in achieving their tax credit equalization plan.

Maximize your tax benefit by speaking with a qualified tax professional.

The goal of applying any itemized deduction is to reduce your adjusted gross income (AGI) by as much as possible.  As there may be scenarios in which it is beneficial from a tax standpoint for one spouse to claim the majority of the mortgage interest deduction, it is very important that you engage a qualified tax professional to maximize the tax benefit to both parties in the divorce process.  Similar to my previous point, if one spouse benefits from taking a disproportionate amount of the real estate itemizations, there are other available remedies to ensure that the other party receives similar tax benefits, such as, claiming children as dependants and/or a uneven distribution of the charity donations.etc.

ARTICLE BY

David A. Beaver
Stark & Stark
New Jersey Law Blog

A Quick Reference Guide to Preparing for a Divorce

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It’s hard to dismantle and disentangle a shared life. Fear and anxiety about divorce, the legal process and personal transition, frequently keep people in marriages that are abusive, plagued by infidelity, or fraught with friction. If you reach the (sometimes startling) conclusion that your marriage may end, here are five things to consider in preparing for divorce.

1. Compile Documents. Collect your last three years’ tax returns, and the past six months’ credit card statements, bank account statements, medical care invoices, and business expense records. Also collect any prenuptial or post-marital agreements, wills, disclaimer deeds, and trust documents. Whether or not you were involved in managing family finances during the marriage, understanding the debts and assets involved in the divorce is critical for the proceedings and for your attorney’s understanding of the issues, and will empower you to make informed decisions.

2. Know When To Act Quickly. Divorces can be contentious, and some marriages are characterized by verbal, emotional, or physical abuse. Obtain an Order of Protection if you are threatened or fear for your safety or that of loved ones. If your spouse is excessively spending or incurring debts detrimental to the marriage, filing for divorce sooner rather than later can help you preserve resources needed during and after the divorce.

3. Consult With An Attorney. Consult with at least one family law attorney before filing for divorce. There is no substitute for an experienced family law attorney with expertise in dealing with the issues in your case. Additionally, there are immediate consequences to filing for a divorce, such as the issuance of a preliminary injunction that will prohibit you from removing funds from bank accounts, traveling with children out of state, and selling items or property, among other restrictions. Knowing the process before you begin can help you plan.

4. Understand the Alternatives. There are alternatives to divorce that may better suit your situation, including legal separation and conciliation services. Consulting with a family lawyer can help you make the best decision for your circumstances.

5. Talk to Your Kids. Spouses who are parents must also address a tough question: how to tell the kids? Children may experience anxiety or blame themselves if parents fail to communicate. When appropriate, work with your spouse or third-party counselor in developing a plan to discuss the situation with your children.

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The IRS/Treasury Department Announcement & Estate Planning Ruling Re: Same-Sex Marriage

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On August 29, 2013, the Treasury Department and the Internal Revenue Service (“IRS“) issued Revenue Ruling 2013-17. The ruling establishes that the IRS will recognize same-sex marriages for all federal tax purposes regardless of where the couple lives, as long as the couple was married in a jurisdiction that recognizes such marriages. So, for example, if a couple was married in Connecticut (a recognizing state), but now live in Kentucky (a non-recognizing state), they will receive the same federal tax treatment as heterosexual couples residing in Kentucky. The ruling clarifies that a “state of celebration” approach will be used versus a “state of residence” rule. Treasury Secretary Jacob J. Lew says the decision “[a]ssures legally married same-sex couples that they can move freely throughout the country knowing that their federal filing status will not change.” It is important to note that, according to the ruling, “marriage” does not include a registered domestic partnership, civil union or other similar arrangement. The ruling applies to all federal tax provisions where marriage is a factor, including: filing status, estate tax exemptions, personal and dependency exemptions, the standard marriage deduction, IRA contributions, earned income tax credits and employee benefits.

The ruling came on the heels of the Supreme Court’s June 2013 decision in United States v. Windsor and is meant to address some of the confusion that Windsor left in its wake. As background, before Congress enacted the Defense of Marriage Act (“DOMA“), marital status for federal income tax purposes was defined by state law. Section 3 of DOMA banned same-sex couples from being recognized as “spouses” for all federal law purposes. Windsor ruled Section 3 of DOMA unconstitutional; however, the decision did not require states to recognize same-sex marriages. Thus, since June, state and federal agencies have been wondering how to deal with same-sex marriages in non-recognizing states. With the Revenue Ruling, much-needed guidance has arrived.

From the estate planning perspective, there are now several more options that same-sex couples can use to their advantage. First, same-sex spouses are now eligible for the marital deduction, which means that they may transfer as much as they want to their spouse (in life and in death) without incurring federal estate or gift tax, provided that the recipient spouse is a U.S. citizen.

Another benefit is the use of “gift-splitting.” Any individual can give up to $14,000 each year to as many people as they choose without incurring gift tax. Heterosexual spouses, and now same-sex spouses, can combine their $14,000 to jointly give $28,000 to individuals tax-free.

Same-sex spouses will also now get to take advantage of an estate planning tool known as “portability.” Portability allows a widow or widower to use any unused estate tax exclusions (capped at $5.25 million for 2013) of their spouse who died in addition to their own. The unused exclusion must be transferred to the surviving spouse and an estate tax return must be filed (by the executor) within nine months of the spouse’s death, even if no tax is due.

The ruling also has a myriad of other implications for taxes and employee benefits that should be carefully considered by same-sex couples. There are still lingering questions about how other agencies, such as the Social Security Administration, will address benefits post-Windsor.

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Social Media and Divorce

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The following is a good article on forbes.com about how social media can affect your divorce: http://www.forbes.com/sites/jefflanders/2013/08/20/how-social-media-can-affect-your-divorce/

In my experience, social media is a better source of evidence for proving adultery and obtaining useful information for a custody battle than for finding hidden assets.  But the author is spot on when he writes that even if your spouse is not a “friend” and does not have direct access to your Facebook page for example, chances are that one of your other “friends” will allow him/her to access your page.  Thus, photos of you drunk at a party will find their way into evidence during trial.  Even if you did not post the photo, your friend might tag you in his photo, and thus your spouse gains access.

Another common mistake is having a teenage child as a friend on Facebook, and then writing negative comments about the spouse which the child has access to; having a child as your friend on Facebook is not a good idea and frowned upon by the courts.

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Treasury Department Recognizes All Legal Marriages for Tax Purposes

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On August 29, 2013, the Treasury Department issued Revenue Ruling 2013-17, Internal Revenue Bulletin 2013-38, which states that same-sex couple legally married in jurisdictions that recognize their marriage will be treated as married for ALL federal tax purposes. As a result, legally married same-sex couples are treated the same as legally married opposite-sex couples for federal tax purposes if the state of ceremony of their marriage recognizes same-sex marriage even if their state of residence does not recognize same-sex marriage.

This Ruling has significant impact for legally married same-sex couples and their tax advisors. However, it does not impact state law rules regarding the definition of marriage and may complicate income tax filings for same-sex couples legally married but living in a state that does not yet recognize their marriage, like Wisconsin and Illinois.

Background Leading Up to the Ruling

The Defense of Marriage Act (DOMA) was enacted by President Clinton in 1996. Section Two of DOMA says states do not have to recognize same-sex marriages performed in other states. Section Three of DOMA defined marriage for all federal purposes as only between one man and one woman.

On June 26, 2013, in Windsor v. United States (Windsor), the United States Supreme Court held that Section Three of DOMA was unconstitutional. Therefore, any same-sex married couple that lives in a state that recognizes same-sex marriage is to be treated the same for all purposes as any other married couple, and thereby are entitled to all of the 1,138 rights and privileges under federal law that are granted to married persons, which includes federal tax law.

Section Two of DOMA was unaffected by Windsor. Therefore, a same-sex couple that marries in one of the thirteen states that recognizes same-sex marriage who then moves to one of the thirty-seven states that does not recognize same-sex marriage would not be treated as married if the state of residence determines whether a couples is considered married, as opposed to the state of ceremony determining if a couple is married.

Absent guidance from the Treasury Department, a same-sex couple legally married in a recognition jurisdiction who then move to a state that does not recognize same-sex marriage, would most likely not be treated as married for federal tax law purposes. This is because the majority of federal tax laws are determined by a couple’s state of residence, not the state of ceremony of their marriage.

State of Ceremony Versus State of Residence

Consider the following examples to illustrate Windsor and this Ruling:

Britney and Jason are married in a drive-through chapel by an Elvis impersonator in Las Vegas and then go home to California. Their opposite-sex marriage is recognized for federal tax law purposes in California (and all other states) because California recognizes legal Nevada marriages. Sadly, Britney and Jason’s marriage only lasted 55 hours.

Mitchell and Cam are a same-sex couple married in New York (New York being a state of ceremony that recognizes same-sex marriage) and move back to Milwaukee (Wisconsin being a state of residence that does not recognize same-sex marriage). Prior to the Revenue Ruling, Mitchell and Cam are not married for federal law purposes, even though their marriage would be recognized if they stayed in New York. This is because Article Two of DOMA says that Wisconsin does not have to recognize New York marriages.

After the Revenue Ruling, with an effective date after September 16, 2013, Mitchell and Cam in Wisconsin will be treated as married for federal tax law purposes just like Britney and Jason in California. Mitchell and Cam will be able to utilize all federal tax laws Britney and Jason would be able to utilize (if Britney and Jason had respected the sanctity of their marriage).

Federal Tax Impact of Ruling

As a result of the Revenue Ruling, regardless of a couple’s state of residence, if they are married in a state that legally recognizes their marriage, the couple will be entitled to the following federal tax law benefits (among others): filing status as married filing jointly, claiming personal and dependency exemptions, taking the standard deduction, employee benefits, contributing to an IRA, spousal rollovers of IRA’s, unlimited marital deduction for estate and gift tax purposes, gift tax splitting, and estate tax exemption portability.

The Revenue Ruling does not apply to registered domestic partnerships, civil unions, or similar formal relationships recognized under state law that are not considered “marriage” under state law.

Legally married same-sex couples must file their 2013 income tax returns as either “married filing jointly” or “married filing separately.” They may also, but are not required to, file amended returns for open years (generally 2010, 211, and 2012) to be treated as married for federal tax law purposes.

Also, if an employee purchased health insurance coverage from their employer on an after-tax basis for their same-sex spouse, they may now treat the amounts paid for that coverage as pre-tax and excludable from their income, and file amended returns for a refund for open years. Further, if their employer paid Medicare and Social Security tax on those taxable benefits to the employee, the employer may file for a refund for both the employee and employer portions of those overpayments for open years.

Continuing Issues in Non-Recognition States

As of August 30, 2013, the District of Columbia and thirteen states (California, Connecticut, Delaware, Iowa, Maine, Massachusetts, Maryland, Minnesota, New Hampshire, New York, Rhode Island, Vermont, and Washington) recognize same-sex marriage. Therefore, clients who get married in those states or have employees who get married in those states, but subsequently reside in a non-recognition state, need to be aware of the new federal tax law benefits and obligations.

Even though married same-sex couples may now file as “married filing jointly” for federal income tax purposes, states like Wisconsin and Illinois that do not recognize same-sex marriage would still require those couples to either file as single or as married filing separately on their federal returns. This is because most state income tax forms use federal income tax amounts as the starting point for preparing the state return, and most state returns require the federal return to be attached to the state return. Without further guidance from state tax authorities, this could complicate income tax filings for same-sex married couples in non-recognition states.

Estate, gift, and generation skipping transfer tax laws now treat all legally married same-sex couples the same as opposite-sex couples, but, like opposite-sex couples, the Revenue Ruling does not mitigate the need for same-sex married couples to prepare estate plans. Many property law issues are driven by whether someone is classified as a “spouse” under state law, including who inherits under intestacy and other survivorship rights, all of which can be controlled by a will or trust in non-recognition states (like Wisconsin and Illinois). Finally, some states (like Illinois) have state estate and gift tax exemptions that are lower than the current federal estate and gift tax exemptions, which requires careful estate tax planning for all married couples, be they opposite-sex or same-sex.

The impact of Windsor and how same-sex couples are recognized for federal and state laws is a fast changing arena, and additional federal and state guidance will be required.

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First Post-Supreme Court Defense of Marriage Act (DOMA) Case Rules in Favor of Same-Sex Spouse

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In one of the first post-Supreme Court DOMA cases, the Eastern District of Pennsylvania, applying Illinois state law, held that the surviving same-sex spouse of a deceased participant in an employer sponsored pension plan was entitled to the spousal death benefit offered under the plan. See Cozen O’Connor, P.C. v. Tobits, Civil Action No. 11-0045; 2013 WL 3878688 (E.D. Pa., July 29, 2013).

This case is significant because it is the first case after the Supreme Court’s June 26, 2013 decision in United States v. Windsor, 133 S. Ct. 2675 (2013) to grapple with choice of law in determining whether a marriage is valid for purposes of obtaining spousal benefits under an ERISA-covered plan. While Windsor ruled that Section 3 of DOMA defining marriage only as between persons of the opposite sex unconstitutional for purposes of applying federal law, it did not address or invalidate Section 2, which permits states to decline to recognize same-sex marriages performed in other states.

Case Background

In 2006, Sarah Farley and Jean Tobits were married in Canada. Shortly after they were married, Ms. Farley was diagnosed with cancer, and she died in 2010. At the time of her death, Ms. Farley was employed by the law firm of Cozen O’Connor and a participant in the firm’s profit sharing plan (the Plan). The Plan provided that a participant’s surviving spouse would receive a death benefit if the participant died before the participant’s retirement date. If the participant was not married or the participant’s spouse waived his or her right to the death benefit, the participant’s designated beneficiary would be entitled to the death benefits. The Plan defined “Spouse” as “the person to whom the Participant has been married throughout the one-year period ending on the earlier of (1) the Participant’s annuity starting date or (2) the date of the Participant’s death.”

Ms. Farley’s parents and Ms. Tobits both claimed a right to the Plan’s death benefits. Ms. Farley’s parents claimed that they had been designated as the beneficiaries, but it was undisputed that Ms. Tobits had not waived her rights to the death benefits. Cozen O’Connor filed an interpleader action in the Eastern District of Pennsylvania asking the court to determine who was entitled to the benefits. Therefore, the case focused on whether Ms. Tobits qualified as a “Spouse” under the Plan and thus was entitled to the death benefits.

The Court’s Ruling

The court noted that Windsor “makes clear that where a state has recognized a marriage as valid, the United States Constitution requires that the federal laws and regulations of this country acknowledge that marriage” irrespective of whether the marriage is between a same-sex couple or a heterosexual couple. With Windsor’s emphasis on states’ rights to define marriage, lower courts are left with the complicated task of deciding which state law applies when determining whether a same-sex spouse is entitled to benefits under federal law in those instances, as in Cozen, where multiple jurisdictions with different laws on same-sex marriage are implicated.

Apparently, because Cozen O’Connor is headquartered in Pennsylvania, the Plan is administered there, and the Plan’s choice of law provision references Pennsylvania law, the Farleys asked the court to apply Pennsylvania state law to determine the validity of the marriage. Pennsylvania’s mini-DOMA statute expressly defines marriage as between a man and a woman. The court concluded that ERISA preempted Pennsylvania law. It reasoned that if courts were required to look at the state in which the plans were drafted, plan administrators might be encouraged to forum shop for states with mini-DOMA laws to avoid paying benefits to same-sex couples. The court thought this kind of forum shopping would upset ERISA’s principle of maintaining national uniformity among benefit plans. Without further analysis, the court concluded Pennsylvania state law was not an option for determining Ms. Tobits’ status as a spouse within the meaning of the Plan.

Instead, the court applied Illinois law, the state where Ms. Farley and Ms. Tobits had jointly resided until Ms. Farley’s death. It was undisputed that Ms. Farley and Ms. Tobits had a valid Canadian marriage certificate. The court concluded that the marriage was valid in Illinois and that Ms. Tobits was Ms. Farley’s spouse within the Plan’s definition. Accordingly, the court held that Ms. Tobits was entitled to the Plan’s death benefit. Although not entirely clear, the court presumably came to this conclusion based on Illinois’ civil union statute (even though it was enacted after Ms. Farley’s death). The statute provides that (i) same-sex marriages and civil unions legally entered into in other jurisdictions will be recognized in Illinois as civil unions and (ii) persons entering into civil unions will be afforded the benefits recognized by Illinois law to spouses. See 750 Ill. Comp. Stat. An. 75/5 and 75/60 (West 2011).

Impact of Cozen on ERISA Benefit Plans

Cozen is the first ruling in the wake of Windsor to address which state law might apply when there are conflicting state laws as to whether a valid marriage is recognized for the purpose of being a “spouse,” and therefore whether the spouse is entitled to benefits under an ERISA-covered plan. In Cozen, Ms. Farley and Ms. Tobits were lawfully married in Canada, and the court ruled that Illinois’s civil union law recognizes lawful marriages performed in other jurisdictions. The court applied the law of the domicile state to support its holding that Ms. Tobits was a surviving spouse entitled to the Plan’s death benefit.

The Cozen decision may have little value outside of cases where a valid same-sex marriage is performed in one state (the “state of celebration”) and the state where the couple is domiciled recognizes same-sex marriages. In other situations, faced with a choice of law where the law of the state of domicile conflicts with the law of the state of celebration, the outcome could be different, because Section 2 of DOMA survives after the Windsor decision. Unless the federal government creates a uniform method of determining the choice of law question, ERISA cases raising benefit entitlement questions in the context of same-sex marriages are likely to continue to complicate plan administration, and ERISA’s goal of maintaining national uniformity in the administration of benefits will remain elusive.

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Supreme Court Decides Indian Child Welfare Act Case

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In Adoptive Couple v. Baby Girl, — S.Ct. —-, 2013 WL 3184627 (U.S. 2013), the baby girl in question (Baby Girl) was born in Oklahoma to unwed parents, including a Cherokee father (Father) and non-Indian mother (Mother). After the couple broke up during the pregnancy, Father, in response to an inquiry from Mother, text-messaged Mother that he would rather give up parental rights than pay child support. Mother decided to terminate her parental rights and give the baby up for adoption.

The adoptive parents (Adoptive Parents), residents of South Carolina, were present when Baby Girl was born September 15, 2009, and took her home with them shortly after receiving permission from Oklahoma pursuant to the Interstate Compact on Placement of Children. Adoptive Parents began adoption proceedings in South Carolina three days after Baby Girl was born but Father did not receive notice until nearly four months later, in January 2010. when a process server presented him with an “Acceptance of Service and Answer,” which purported to waive the 30-day waiting period, waive notice of hearing and waive any objection to the adoption. Father, a soldier about to depart for Iraq, signed but then immediately changed his mind and sought a stay of adoption under the Servicemember’s Civil Relief Act.

The Cherokee Nation, which had previously indicated that Father was not a citizen, later determined that he was. The South Carolina adoption petition was amended accordingly in March 2010. After establishing paternity through DNA testing, Father challenged the adoption. Adoptive parents argued that, under South Carolina law, there was no need for Father’s consent to the adoption because Father had neither lived with Mother or Baby Girl for the six months preceding the adoption nor paid child support. The South Carolina family court judge ruled that the Indian Child Welfare Act (ICWA) applied and mandated that Baby Girl be turned over to father. After various stay motions were denied, Father returned to Oklahoma with Baby Girl December 31, 2011. The South Carolina Supreme Court affirmed.

On June 25, the Supreme Court in a 5-4 decision reversed. The state court had relied in part on Section 1912(f) of the codified ICWA, which bars termination of parental rights to an Indian child unless the court finds that “the continued custody of the child by the parent or Indian custodian is likely to result in serious emotional or physical damage to the child.” Emphasizing the word “continued,” the Court held that “§ 1912(f) does not apply where the Indian parent never had custody of the Indian child” (Emphasis in original).

The Court also disagreed with the South Carolina court’s conclusion that termination of Father’s rights was barred by Section 1912(d), which requires a showing that efforts have been made “to prevent the breakup of the Indian family,” holding Section 1912(d) inapplicable in Father’s case: “But when an Indian parent abandons an Indian child prior to birth and that child has never been in the Indian parent’s legal or physical custody, there is no relationship that would be discontinued – and no effective entity that would be ended – by the termination of the Indian parent’s rights.” (Internal quotes and ellipses omitted).

Finally, the Court held that Section 1915(a), which mandates preference “in any adoptive placement” for a member of the child’s extended family, other members of the child’s tribe or other Indian families, in that order, did not apply in the case of Baby Girl: “This is because there simply is no ‘preference’ to apply if no alternative party that is eligible to be preferred under § 1915(a) has come forward.”

In an important concurrence, Justice Breyer explicitly left open whether ICWA sections 1915(a), (b) and (f) might apply under different circumstances, e.g., where the Indian father (1) has visitation rights, (2) has paid child support, (3) was deceived about the existence of a child, or (4) was prevented from supporting his child.

In a dissent joined by three other members of the Court, Justice Sotomayor accused the majority of distorting the meaning of the term “continued” to defeat the very purposes for which Congress had enacted the ICWA:

The majority’s hollow literalism distorts the statute and ignores Congress’ purpose in order to rectify a perceived wrong that, while heartbreaking at the time, was a correct application of federal law and that in any case cannot be undone. Baby Girl has now resided with her father for 18 months. However difficult it must have been for her to leave Adoptive Couple’s home when she was just over 2 years old, it will be equally devastating now if, at the age of 3 1/2, she is again removed from her home and sent to live halfway across the country. Such a fate is not foreordained, of course. But it can be said with certainty that the anguish this case has caused will only be compounded by today’s decision.

According to the dissent, “continued” custody, consistent with congressional intent, means prospective custody and does not preclude the application of ICWA’s protections to a non-custodial Indian parent, including (1) the requirement that a proceeding be transferred to tribal court upon the Indian parent’s request, in the absence of good cause to the contrary, as required by Section 1911(b), (2) the requirement that any consent to adoption be in writing and executed before a judge, per Section 1913(a), (3) the requirement of Section 1912(a) that an Indian parent and the child’s tribe receive notice, and (4) the requirement of Section 1912(b) that the Indian parent be provided with legal counsel.

The dissent also sends a message to the state court, which will now consider the case on remand, laying out a scenario that could result in Father having no parental rights but having a relationship with his own daughter through relatives:

[T]he majority does not and cannot foreclose the possibility that on remand, Baby Girl’s paternal grandparents or other members of the Cherokee Nation may formally petition for adoption of Baby Girl. If these parties do so, and if on remand Birth Father’s parental rights are terminated so that an adoption becomes possible, they will then be entitled to consideration under the order of preference established in § 1915. The majority cannot rule prospectively that § 1915 would not apply to an adoption petition that has not yet been filed. Indeed, the statute applies “[i]n any adoptive placement of an Indian child under State law,” 25 U.S.C. § 1915(a) (emphasis added), and contains no temporal qualifications. It would indeed be an odd result for this Court, in the name of the child’s best interests, cf. ante, at —-, to purport to exclude from the proceedings possible custodians for Baby Girl, such as her paternal grand-parents, who may have well-established relationships with her.

In an odd concurring opinion, Justice Thomas blesses the majority for not reaching more fundamental constitutional questions but then embarks on an originalist reimagining of federal Indian law pursuant to which (1) Congress had no authority to enact the ICWA, (2) the doctrine of congressional plenary power is error, (3) congressional power is strictly limited to commercial trade with Indian tribes located beyond state borders, and (4) congressional power does not extend to citizens of tribes. The idea behind concurrences of this nature is to plant seeds that the author hopes will germinate into a majority of the court at some future date.

Defense of Marriage Act’s Demise (DOMA) – What it Means for Canadian Residents with U.S. Ties

Altro Levy LogoLast week, the US Supreme Court issued an historic and landmark ruling in the case of US v. Windsor. It has been hailed in the media as the demise of the Defense Of Marriage Act (“DOMA”), and celebrated as an extension of more than 1,000 federal benefits to same-sex couples.

In US v. Windsor, Edith Windsor brought suit against the US government after she was ordered to pay $363,000 in US estate tax upon the death of her wife Thea Spyer. Edith and Thea were legally married in Canada in 2007, but the US federal government did not recognize their marriage when Thea passed away in 2009. Under DOMA gay marriage was not recognized, even if it was legal in the jurisdiction where it was performed. This lack of recognition meant that Edith could not take advantage of the marital deduction that would have allowed her to inherit from her wife without paying US estate tax.

In its ruling on June 26th, the US Supreme Court ruled that the US federal government could not discriminate against same-sex married couples in the administration of its federal laws and benefits as previously dictated by DOMA. Same-sex couples, who are legally married in one of the 13 states that recognize gay marriage, or a country like Canada, now have access to the same federal protections and benefits as a heterosexual married couple.

Tax Benefits

The demise of DOMA will bring with it a multitude of changes under US tax law. We will not attempt to enumerate all of them here, though we will provide a brief overview of key changes for our Canadian and American clients.

i. US Estate Tax

The case of US v. Windsor was based on the US estate tax, which is imposed by the US federal government on both US citizens and residents, as well as non-residents who own US assets worth more than $60,000 USD. Currently US citizens and residents with less than $5.25 Million USD in worldwide assets do not owe US estate tax on death. Canadians with worldwide assets of $5.25 Million USD or less receive a unified credit under the Canada-US Tax Treaty that works to eliminate any US estate tax owed on their US property.

Under federal law a US citizen may pass his entire estate to his US citizen spouse tax-free upon death. Up until last week this rollover was unavailable to same-sex couples.

Canadian same-sex couples should now benefit from the Canada-US Tax Treaty provisions that provide a marital credit to the surviving spouse. This allows for a doubling up of credit against any potential US estate tax due on US property. Now a Canadian same-sex spouse can inherit a worldwide estate worth up to $10.5 Million USD and should see little to no tax on US assets due upon the death of the first spouse.

ii. Gift Tax

The US imposes a tax on gifts if they exceed $14,000 USD per recipient per year. There is an exemption for gifts between spouses, which are generally not taxable.

Gifts made in the US between non-US citizen non-resident spouses are taxable, but the annual exemption is $139,000 USD instead of $14,000 USD. Canadian spouses who gift each other US property, US corporate stocks, etc. may gift up to $139,000 USD per year without incurring US gift tax.

These exemptions have now been extended to same-sex couples, expanding their ability to use gifting for tax and estate planning.

iii. US Income Tax

Many Canadians move to the US each year, in part because of the lower personal tax rates. In the US spouses are allowed to engage in a form of income splitting by filing a joint income tax return. By filing jointly, married couples are also generally able to take advantage of further credits and deductions not afforded to individual or single filers. Being able to file jointly can be highly tax advantageous.

Previously, same-sex couples had to file either separately or as head of household. Now they have the option of filing jointly as spouses, and gaining access to the aforementioned income splitting, credits and deductions.

Couples may file up to three years of amended US Income Tax returns if they believe that they would have been entitled to a larger tax return by filing jointly in those years.

iv. Other Tax Benefits

In the US most individuals receive health insurance through their employer at least up until they qualify for US Medicare at age 65. Previously, if the employer sponsored health insurance plan covered the same-sex spouse as well, then it was considered a taxable benefit. Such coverage will now also be tax-free for same-sex couples.

Retirement Benefits

Among the many benefits now extended to same-sex couples are a variety of “Retirement Benefits.”

i. Social Security and Medicare Benefits

With the end of DOMA, same-sex couples may now qualify for retirement, death, and disability Social Security benefits based on their spouse’s qualifying US employment history. For example, same-sex couples that do not have the required US employment history to qualify for US Social Security benefits on their own may now qualify for spousal Social Security benefits based on their spouse’s qualifying employment history. These spousal Social Security benefits are typically equal to 50% of the Social Security benefits received by the spouse with the qualifying employment history.

Additionally, spouses can qualify for US Medicare based on only one spouse’s qualifying US employment. This allows access to premium-free, or reduced-premium, health coverage in retirement.

Previously these important retirement benefits were not available to same-sex spouses.

ii. Individual Retirement Accounts

Important changes to the rights and recognition of spouses under US retirement savings plans result from the end of DOMA. Same-sex couples will now be recognized under 401(k), 403(b), IRA, Roth IRA, and similar plans. Spouses will be required to give their consent for any non-spouse beneficiary designations for these accounts. They will be treated as spouses for purposes of determining required distributions. For example, an inheriting same-sex spouse will not have to begin IRA distributions until age 70 ½, whereas previously he would have had to begin required distributions immediately as would any non-spouse beneficiary.

Immigration

One of the biggest questions after the US Supreme Court’s ruling on DOMA was whether there would be immediate changes to US immigration policy. Previously the US government did not recognize same-sex couples for immigration purposes. This meant that a US citizen spouse could not sponsor his husband for immigration to the US as a permanent resident (a.k.a. green card holder).

Last week, shortly after the ruling on DOMA, Alejandro Mayorkas, the director of US Citizenship and Immigration Services (“USCIS”) announced at the American Immigration Lawyers Association annual conference that the USCIS would begin issuing green cards to qualifying same-sex couples.

As of Friday, June 29, 2013, USCIS began issuing green cards to same-sex spouses. USCIS has stated that it has been keeping a record of spousal green card petitions denied only due to a same-sex marriage for the past two years. It is expected to reopen and reconsider these spousal sponsorship petitions that were previously denied due to same-sex marriage.

Conclusion

The demise of DOMA is exciting news for Americans, and Canadians with US ties. It provides same sex couples a wealth of new tax and estate planning opportunities, not to mention new opportunities for retirement and immigration planning. It is not too early to review your current planning, and take advantage of these changes.

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What Windsor Means for Same-Sex Married Couples Seeking U.S. Immigration Benefits

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On June 26, 2013, the Supreme Court ruled in United States v. Windsor that Section 3 of the 1996 Defense of Marriage Act (“DOMA”) is unconstitutional. This Section of DOMA prohibited the U.S. government from conferring any federal benefits to same-sex couples who were married in any jurisdiction in the world.

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What does the Windsor decision mean for same-sex couples seeking immigration benefits?

On the immigration front, DOMA has been the main obstacle prohibiting married same-sex couples from accessing any immigration benefits that would otherwise flow to a spouse. For example, a U.S. citizen may sponsor a spouse who is a foreign national for permanent residence, and that foreign national spouse is considered an “immediate relative” of a U.S. citizen and exempt from annual numerical limitations on immigrants. Before Windsor, this option of “immediate relative” sponsorship did not exist for same-sex couples. Same-sex spouses also were not able to qualify for derivative nonimmigrant visas, or to qualify as dependents in an employment-based immigrant visa or adjustment of status process. Windsor has permanently shifted this landscape, with same-sex married couples being recognized as married and therefore able to access immigration benefits, provided they can demonstrate eligibility under the law for the specific benefits sought.

What marriages are valid under Windsor?

Generally, if a couple’s marriage is valid where it is performed, it is valid for purposes of immigration law. If you and your foreign national spouse were married in one of the 12 U.S. states that recognize same-sex marriage or in a foreign country that recognizes same-sex marriage, such as Canada, your green card sponsorship and application process should be treated exactly like the application of a different-sex couple. In fact, Edie Windsor, the plaintiff in Windsor, married her wife in Canada. To determine the validity of the marriage, U.S. Citizenship and Immigration Services (“USCIS”) focuses on the place where the marriage took place, not the location where one or both spouses live. This same principle is applied by other agencies within the Department of Homeland Security as well as at U.S. Embassies and Consulates.

Recent Guidance from the Federal Government

We expect government agencies to implement the Windsor decision swiftly. This means that immediately we will see changes at the various federal agencies that process applications for immigration benefits and visas. Secretary of Homeland Security Janet Napolitano issued a statement following the Court’s decision. She directed USCIS “to review immigration visa petitions filed on behalf of a same-sex spouse in the same manner as those filed on behalf of an opposite-sex spouse.” Recent Department of Homeland Security guidance is now clear that family-based immigrant visas will no longer “be automatically denied as a result of the same-sex nature of your marriage.” Following the Court’s decision, Secretary of State John Kerry stated that the Department of State (DOS) will work with the Department of Justice and other agencies “to review all relevant statues as well as benefits administered” by DOS. We expect to see guidance from U.S. Consulates in the coming weeks.

Conclusion

Same-sex couples who are married now have equal access to immigration benefits. The scope of the Windsor decision extends to same-sex spouses of individuals pursuing employment-based immigration benefits, such as green card and nonimmigrant visa sponsorship. We will continue to monitor developments in the law and provide guidance on immigration options for LGBT families.

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